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Context

The National Logistics Policy (NLP), rolled out on September 17, will play a big role in providing a boost to the logistics sector in India.
It’s expected to bring down the logistics cost, which currently is quite high in India compared to other developed countries, and also make India a global logistics hub with enhanced economic activity.

What is Logistics?

Logistics refers to the overall process of managing how resources are acquired, stored, and transported to their final destination.
It involves identifying prospective distributors and suppliers and determining their effectiveness and accessibility.

India’s logistics sector: A backgrounder

Logistics is the backbone of the economy. It affects all industries in three sectors – agriculture, manufacturing, and services. In India, the logistics sector has been marred with inefficiencies, depriving the industry of achieving its full potential.

(1) Road Transport

The country faces a skewed logistic modal mix with nearly 71% of all freight transport being done by roads.
Highways only account for 2.2 % of the entire road network but carry 40% of all freight traffic, thereby putting immense strain on the highway network of the nation.

(2) Railways

The Railways’ share in freight transport has dropped from 89% in 1950-51 to only 18%in 2020.
The average speed of a freight train in India is only 25 km/hour with a permitted axle load (freight capacity of wagons) of around 20 tonnes.
The US, which has a vast rail network like India, runs its freight trains at an average speed of 38 mph (60 kmph) and permits an axle load of nearly 30 tonnes.

(3) Air Cargo

The picture is similar in terms of the air cargo handled.
According to the Ministry of Civil Aviation’s Annual report 2019-20, India has 23 domestic cargo terminals and 20 international cargo terminals which handled a total of 3.56 million tonne (mt) of cargo in 2018-19.
In contrast, the Shanghai Pudong International Airport in China alone handled 3.63 mt of cargo in 2019.

What is National Logistics Policy, 2022?

First introduced in 2020 during Finance Minister’s Budget speech, the policy will bring in an integrated and tech-enabled approach to logistics operations to bridge the efficiency gap.
A comprehensive action plan is proposed under the policy, with major features including:
Integrated digital logistics systems;
Unified logistics interface platform;
Ease of logistics and standardization of physical assets and
Benchmarking service quality standards, state engagement,
Human resource development and capacity building,
Export-import logistics
Sectoral plans for efficient logistics, and facilitation of the development of logistics parks.

Why need a logistics policy?

Organizing and consolidating the sector: India’s logistics sector is largely unorganized and fragmented. As per estimates, the worth of Indian logistics market is over $200 billion.
Reducing logistics cost: This is why the country’s logistics costs are as high as 14-15% of the GDP, against 7-8% in developed nations such as the Singapore and the US, who leverage it to boost exports. The NLP aims to bring down India’s logistics cost to 8% in the next five years.
Preventing waste of perishable items: As per some estimates in India, about 16% of agri-production is wasted at different stages of the supply chain.
Warehousing development: Moreover, due to factors such as limited capacity and availability of warehouses, the cost of transaction increases.
Multi-modal integration: The new policy is going about simplification, technology and will have a multimodal approach that will combine rail, water, and air — all modes of transport.
Reducing operational complexities: The sector is complex with more than 20 government agencies, 40 PGAs (Partner Government Agencies), 37 export promotion councils, 500 certifications, over 10,000 commodities.
Employment generation: The sector provides livelihood to more than 22 million people and improving it will facilitate 10 per cent decrease in indirect logistics cost leading to the growth of 5 to 8 per cent in exports.

What are the focus areas?

According to several reports, the policy is expected to touch upon four main steps:

Integration of Digital System (IDS): This system will look forward to integrating 30 different systems of seven different departments, which are road transport, railway, customs, aviation, foreign trade, and commerce ministries. The digital data from these departments will be integrated under IDS. This will directly affect shorter cargo movement in a positive way.
Unified Logistics Interface Platform (ULIP): This system will monitor smooth cargo movement.
Ease of Logistics (ELOG): Under this, the new policy will simplify the rules, which is expected to simplify basic business.
System Improvement Group (SIG): This system will be used to monitor all logistics-related projects regularly and will facilitate the removal of any hurdle. An empowered group of secretaries (EGoS), constituted under the PM Gati Shakti, would monitor and review the implementation of the policy.

How will the NLP increase the participation of state governments?

Under the policy, every state in India will have to set up a State Logistics Coordination Committee/Cell.
The policy will also annually review the performance of every state through the Logistics Ease Across Different States (LEADS) index.
The central government will also let states develop their logistics ecosystems and provide a roadmap for improving logistics efficiency.
The SIG will also carry out the annual LEADS performance index of states and union territories in India.
The agency will work closely with the states and prepare a comprehensive annual State Engagement Report covering the above-mentioned aspects.

Policy measures till now

Mission Gati-Shakti: This mission has been launched as a national master plan for multi-modal connectivity.
Bharatmala Pariyojana: The 34,000 km of road infrastructure works would be undertaken, of which, 11,000 km have been targeted to be completed by March 2022. (Also read about Sagarmala, Parvatmala etc.)
High budgetary allocation: The government allocated Rs5.54 trillion towards capital expenditure across various ministries in the Union Budget 2021-22, a 34.5% jump from the previous year.
Dedicated freight corridor: There is Eastern and Western Dedicated Freight Corridors commissioned which can be a game-changer for boosting railway freight share
National Air Cargo Policy: This has also been formulated that seeks to build air transport shipment hubs in all major airports by 2025.

Way forward

Third-party logistics services such as warehouse building and management, and last mile transport provisioning would help bridge critical gaps in the logistics sector.
A comprehensive national policy for the logistics sector is critical as it will help the country understand how it can reach its economic goals.
The policy needs to address prevailing concerns in India’s logistics sector from an international lens.